Which of the Following Is True of the Multi-Factor Model $\beta$

Multiple Choice

Which of the following is true of the multi-factor model based on the following equation? var(r₁) = $\beta$ _i1²var(F₁) + $\beta$ _i1²var(F₂) + ...+ $\beta$ _ik²var(F_K) + var( $\varepsilon$ ₁)

A) The sum of the first K term is the total risk of the security.
B) The last term represents the firm-specific risk.
C) The first term represents the firm-specific risk.
D) The last K term is the total risk of the security.